Foreign Investments in Iran

Published by Iran Chamber of Commerce, Industries and Mines
Centre of Economic Research and Analysis, 1994
Word Count: 4854

INTRODUCTION

The Ministry of Economic Affairs and Finance, had announced the complete Regulations
for Foreign investments in the Islamic Republic of Iran.

The following are some of the topics explained in this collection:

1- The law for Attraction and protection of Foreign investments of 1955 (The Law);

2- The by - laws of the law;

3- Investment procedure;

4- The special questionnaire to be filled by the investor(s).

Organization for Investment, Economic and Technical

Assistance of Iran (OIETAI) has arranged the procedure in such a way that all the
applications, before any commitment of either side, must go through the supervisory board
for attraction and protection of foreign investments, and in case of approval of the Board
they may proceed further for obtaining the decree by the Council of Ministers and for
implementation of project(s).

Iran Chamber of Commerce, Industries and Mines has decided to publish the text in
English for interested parties, with the hope that it shall serve the purpose. Iran
Chamber of Commerce, Industries and Mines

Foreign Investment in the Islamic Republic of Iran

GENERAL NOTE:

Foreign direct investment in Iran is allowed only through participation of foreign
persons in the equity capital of existing and new Iranian companies. Maximum foreign
participation in the joint companies is 49% however, this proportion will be determined on
merits of each project. The Law for the Attraction and protection of Foreign investments
of 1995 (The Law) provides the legal framework for the approval of all foreign investments
in Iran.

In accordance with Article I of the Law, foreign natural or legal persons importing
capital, either in cash or in the form of machinery, etc. into Iran with the permission of
the Government of Iran for the purpose of development and productive activities in
industry, mining, agriculture and transportation shall enjoy the facilities provided in
the Law. Such facilities shall be granted to those investors who obtain the required
approval. In general, the facilities referred to among other things, are the annual
transfer of net profits in the currency of the original investment, repatriation of the
original capital and the accrued profits derived there from and proceeds of the sale of
capital or shares and the remaining portion of capital in the event of liquidation
Government guarantee of fair compensation in the event of expropriation pursuant to law,
all at the exchange rate of the Central Bank's selling rate on the day of actual transfer,
and the legal facilities accorded to the domestic investors.

Investment Procedure:

The Procedure to be followed by prospective foreign investor to get his investment
approved involves different stages:

1-Finding a Suitable Iranian partner

The foreign investor may approach in the
following manners:

By referring to or direct correspondence with the relevant Ministries. The relevant
Ministry, with regard to its sanctioned projects, is in a position to introduce holders of
"Agreement in principle" issued by the Ministry/ and or introduce potential
Iranian investors interested to establish industrial firms, to the foreign side:

By referring to or direct correspondence with different banks, financial institutions
and or Iran Chamber of Commerce, Industries and Mines:

By referring to or direct correspondence with Organization for investment, Economic and
Technical Assistance of Iran (O.I.E.T.A.I) Foreign investment Dept. Ministry of Economic
Affairs and Finance:

By direct correspondence with governmental organizations and companies and or through
the press.

2- obtaining the "Agreement in principle" As the second step in initiating the
investment process, the local partner (together with the foreign investor) should apply to
the concerned Ministry for sanctioning the industrial project. The application should be
supported by the following:

a) The special prescribed questionnaire for Setting up an industry, and

b) Copy of project feasibility study.

Should the concerned Ministry, after necessary investigation and examination, be in
agreement in principle with the proposed industry, it will issue and "Agreement in
principle." Based on the above agreement the investor(s) is (are) permitted to start
practical measures for construction of plant, import of machinery and arrangement for
infrastructural utilities.

3- Application for participation

Simultaneous with 2 above or afterwards, the foreign
investor may apply to O.I.E.T.A.I for participation in the realization of the sanctioned
project.

His application should be submitted along with the following documents:

a) Duly filled in "Application for import of Capital(1)".

b) Copy of project feasibility study.

c) Copies of draft Joint Venture Agreement, and Articles of Association of the Joint
Company.

d) Copies of other draft Agreements, if any, in case the foreign investor is the
supplier of services and know-how etc.

e) Power of Attorney given to person (s) for signing the application and other
contractual texts confirmed by the Islamic Republic Consulate in the county of investor.

f) Copies of Articles of Association and financial reports of the foreign investor
including balance sheet and profit and loss account of at least last three years.

g) Other information which is deemed to be helpful.

4- Review of Application by Supervisory Board for Attraction and Protection of Foreign
Investments (The Board)

Foreign Investment Dept. (formerly CAPFI) , after necessary
coordination with the relevant Ministries and examination of the Application and
supporting documents, prepares a comprehensive report and submits it to the Board for a
decision. Should the Application meet country's overall interests, the Board will present
its positive decision through Minister of Economic Affairs and Finance for approval and
issue of a Decree.

5- Issuance of Decree of Council of Ministers

The Decree so issued is the permission
that officially authorizes the foreign investor to begin operations by importing the
required capital into the country. Once officially registered, the imported capital shall
be covered by The Law.

6- Formation of the Joint Company

Upon announcement of the Board's positive decision or after issuance of the Decree, the
local and foreign investors may form joint company for commencement of operations.

Note:

The above procedure must exactly be followed in all new investments. The process of
foreign participation in existing Iranian companies of development plans supply of
technology and or increasing productivity is limited to stages 3,4 and 5 above.

Application for the Import of Capital

A- SPECIFICATIONS OF THE APPLICANT

1. Full name of the applicant (person, firm, etc.):

2. legal domicile of the applicant (full address):

3. Countries of similar activities of the applicant:

4. References (foreign and local banks. industrial or business personalities):

B-
SPECIFICATIONS OF THE FIRM IN IRAN

5- Particulars of the company which is to use the imported capital:

a- Name of the proposed company:

1- Existing

2- To be established

b- Address: Tel:

c- Legal status:

d- Capital: Registered: Rls.
Paid up : Rls.

e- registration No. Date:

6. Names and addresses of Iranian (persons, or firms):

7. Type of proposed or exiting activities in Iran:

C. SUBJECT OF THE PROJECT

8. State whether the project is:

a- New

b- Expansion

9. Exact location of the plant and its distance from the centre of Ostan:

10. Manufactured items with their quantity: Items Unit Maximum capacity of the factory
for each item

11. Proposed working schedule of the factory:

a- Number of shifts:

b- Number of days/Year:

12. Number of foreign technicians, proposed to be employed and the schedule of their
utilization with details for the training of Iranian personnel.

(c) Total C and F value of annual production, if the products are imported.

(d) Estimated ex-factory price of finished product:

26- Foreign exchange return through export:

(a) Estimated FOB value of exports per annum Rls.

(b) Export prospects (indicate likely countries):

27- Salient Features of Schemes:

Please enclose complete project report as well as a complete list of machinery and
equipment showing their capacities.

Having studied the Law and Regulations for the Attraction and protection of Foreign
Investments, I have filled and completed the abroad application and hereby apply for
approval.

Date:
Authorized Signature

LAW CONCERNING THE ATTRACTION AND PROTECTION OF FOREIGN INVESTMENTS IN IRAN

Article I.

Persons, companies, and private firms of foreign nationality, investing in Iran in
accordance with the provisions of Article II of this Law and by permission of the Iranian
Government, either in cash or in the form of factories, machinery and parts, equipment,
patent rights, expert service and the like, for development, rehabilitation, and
productive activities in industry, mining, agriculture, and transport, shall enjoy the
facilities provided in this Law.

(2)Article II.

For the purpose of investigation and making a decision regarding the merits of the
proposals submitted concerning the import of foreign capitals, a Board shall be formd in
Bank Melli Iran under the chairmanship of the Governor of the said Bank, consisting of the
Undersecretaries of Finance, Foreign Affairs, Commerce, and Industries and Mines, the
General Manager of the Plan Organization or one of his assistants, the President of the
Chamber of Commerce of Tehran or one of the vice-presidents, and the head of the Exchange
Committee. Decisions of the Board shall be submitted, through the Minister of Commerce
(3), to the Council of Ministers for approval and issuance of a Decree.

Proposals for investment of foreign capital in provinces shall be given priority over
those for investments in Tehran as regards investigation and issue of a Decree.

Article III.

Capital imported into Iran in accordance with Article 1 of this Law, as well as profits
accrued therefrom, shall be subject to the legal protection of the Government; and all the
rights, exemptions, and facilities accorded to the domestic capital and private productive
enterprises shall also apply to foreign capital and firms. The Government guarantees fair
compensation where the promulgation of a special legislation deprives the owner of capital
from ownership; provided that within three months after the date of expropriation
application for compensation is submitted to the Board mentioned in Art. II.

In case of disputes, investigation of claims for fair compensation guaranteed by the
Government shall be undertaken by competent Iranian courts. In such cases the Government
can grant permission for the transfer abroad of the capital irrespective of the conditions
set forth in Article 5 this Law.

Note 1: The law concerning ownership of real-estate by foreign nationals of Khordad 16,
1310(A.H.) shall remain valid and in force.

NOTE 2: Persons, companies, and private firms mentioned in Article I above are not
entitled to transfer their shares, profits, and rights to their own or other Governments.

Article IV.

The owner of capital is permitted to export every year the net profit derived from the
investment of his capital in Iran in the same currency as that originally imported and up
to a limit to be determined in the regulations implementing this Law.

Article V.

Transfer abroad of the original capital and accrued profits, or the balance of such
capital and profits remaining in Iran, shall be permitted, subject to 3 months prior
notice to the Board mentioned in Article 2, upon fulfilment of all obligations and with
due regard to provisions of Agreement of the International Monetary Fund of July 1944.
However, the owner of capital is required to retain in Iran, for 6 months, at least 10
percent of his original capital to meet his contingent obligations.

Article VI.

The Provisions of this Law shall apply to firms and nationals of such countries where
economic activities and reciprocal facilities for Iranian firms and nationals are made
possible.

Article VII.

The Government is charged to prepare the appropriate regulations implementing this Law
and to submit the same within 2 months through the Ministry of Economy to pertinent
committees of Houses of Parliament for approval.

REGULATIONS IMPLEMENTING THE LAW ON HTE ATTRACTION AND PROTECTION OF FOREIGN CAPITAL.

Article 1.

Any natural or legal person, and any foreign firm, transferring capital to Iran for
development, productive, industrial, mining, transport or agricultural purposes and
subsequent activities, or for granting credit and financial assistance to Iranian firms
engaged in the said enterprises shall enjoy the privileges of the Law for the Attraction
and Protection of Foreign Capital Investments in Iran provided:

(a) Application to invest is submitted for a field open to local private firms.

(b) The investment does not involve any monopoly rights or special privileges;

(c) The capital is privately owned without any foreign government participation.

Note 1: If in the course of operation a foreign government comes to share in the
imported capital in any manner, the said capital should, within a period prescribed by the
Board, be repatriated from Iran.

Note2: Development and productive activities denote activities which help raise the
production level and income of the country, or, directly or indirectly earn foreign
exchange, or effect an economy in its expenditure.

Note3. Foreign banks or their branches established in Iran in accordance with relevant
rules and regulations shall be entitled to enjoy the protection of the Attraction and
Protection of Foreign Capital, in so far the said protection is in compliance with the
Banking Act and its supplementary regulations.

Article 2.

From the standpoint of these Regulations the term "Foreign Capital" denotes:

(a) Foreign exchange imported into Iran through authorized Banks.

(b) Machinery, machine tools, spare parts, and raw materials as well as other
requirements of this type provided they could be currently used and the Supervisory Board
recognises their suitability as such.

Tools and spare parts shall be related to the
factory machinery which is imported as capital; their importation may be simultanious with
that of the main machinery or subsequent there to and provided that imported later, they
form part of goods specifically imported as capital, and not as current expenditure;

(c) Means of transportation-land, sea or air-used in the execution of the project for
which capital has been imported;

(d) Patent rights, provided they are related to and part of the productive operation for
which the application for the import of foreign capital has been made, and that it is
assessed at the discretion of the Supervisory Board;

(e) Technical staff salaries in foreign currency paid before the commencement of actual
exploitation for the purpose of setting up productive enterprises,

(f) All or part of the net profit accrued in Iran and added to the original capital, or
invested in some other enterprise covered by the provisions of the Law concerning the
Attraction and Protection of Foreign Investments. Article 3.

Persons and firms, referred to in Article 1, intending to import their capital into
Iran, should submit their proposals to the Secretariat of the Supervisory Board, together
with a statement in Persian, English, or French, covering the following points.

a. The identity of the person or firm;

b. The country of origin of capital;

c. Type of capital, specifying the cash and non-cash amounts;

d. Legal domicile and the centre of activities of the person or firm;

e. Type of activity and the programme of operation in Iran: and, if Possible, indicating
whether operations will be carried out independently or in partnership;

f. The sphere of activity in Iran;

g. References.

Article 4.

The Board performs its duties in accordance with the Law and the implementing
Regulations; and, should the said Board be in agreement in principle with the importation
of the capital applied for, it will present its views, through the Minister of Commerce
(4), to the Council of Ministers for approval and the issue of a Decree.

Article 5.

Upon issue of the Decree of the Council of Ministers, the applicant should, within a
period prescribed with the agreement of the Board, submit to the Board a detailed list of
the non-cash capital which he intends to import into Iran together with a certificate from
international experts, acceptable by the Board, as to the correctness of its evaluation.

Having agreed with the said evaluation, the Board will present the foreign investor or
his representative with the licence for the import of capital permitting at the same time
commencement of operations.

Article 6.

The foreign investor is entitled to insure the capital which he imports into Iran.
should the insurer be a foreign government insurance institution, and the said institute,
as a result of an accident, replace the investor in accordance with the provisions of the
insurance policy, this replacement does not constitute a transfer of capital.

Article 7.

Within one year from the date of notification, the holder of the licence is under
obligation to take measures to import an appropriate capital for the commencement of
operations; otherwise, his licence shall be null and void. Whenever unexpected events or
other predicaments, justifiable to the Board, call for further delay, the Board must
extend the licence for another six months.

Article 8.

The cash capital which is imported into Iran in lump sum or in instalments, and
converted into rials, must be in foreign exchange acceptable to Bank Melli (5) Iran; and
it shall be registered in the investor's name on the date of its receipt. The amount of
non-cash capital plus the cost of packing, transportation, insurance, etc., paid outside
of Iran, will, after verification, be totally registered in the investor's name in a
special book on the date of arrival of the goods, supported by documents or pertinent
bills, in a monetary unit agreed upon by Bank Melli (6) Iran and the investor.

Article 9.

Conversion of foreign currencies due to be converted into rials is effected at the
current buying rate of Bank Melli (7) Iran on the date of filing the application for
conversion; and, Bank Melli (8) Iran is authorized to buy the said foreign currencies or
to retain them as deposit, convert and pay them in rials at a rate acceptable to both
parties, subject to a separate agreement, and return them, at the time of repatriation, at
the same rate.

Article 10.

Foreign currencies left with the Bank unconverted and not taken as security against
rial payment will be placed at the disposal of their owners, and owners of the said
currencies are entitled to use such currencies, without conversion into rials, for the
payment of the cost of their orders placed abroad or for their indispensable expenses
within the limit of expenses for which the capital has been allocated, or to repatriate
them by virtue of Article 5 of the Law concerning the Attraction and Protection of Foreign
Investments in Iran. An itemized list of expenses and payment in detail will be presented,
at the end of each month, to the Supervisory Board by Bank Melli (9) Iran.

Article 11.

The non-cash capital which is imported into Iran by virtue of the present Regulations
is exclued from the annual quota

Article 12.

If capital is imported in the form of goods which are, by findings of experts and
assessors, mutilated, defective, or, if they do not conform with the specifications given
in the application, or, are declared at a higher value than their actual cost, that part
of the value which is not confirmed by the Supervisory Board shall not be considered as
part of the capital.

Article 13.

Transfer abroad of foreign capital imported into Iran and utilized by virtue of Article
I of Law concerning the Attraction and protection of Foreign Investments, as well as the
profits derived therefrom whether in the form of foreign exchange or authorized commodity,
shall be subject to the following regulations:

(a) The foreign investor, upon examination of his balance sheet and verification of the
annual profit by the Supervisory Board, is entitled, by permission of the said Board, to
transfer abroad the profit accrued in Iran, after deduction of taxes, dues and statutory
reserves, in the same currency in which he has imported the capital:

The Supervisory
Board may not postpone, without plausible reasons, the grant of permission for more than
three months from the date of receiving of the balance sheet. In case foreign exchange
availabilities do not permit the Government to transfer abroad all or part of the
investor's profits, permission will be granted to the investor, upon his request, to
export authorized goods without giving any foreign exchange undertaking;

(b) The foreign investor who intends to export his capital from Iran by virtue of
Article 5 of the Law for the Arrtaction and Protection of Foreign Capital, is under
obligation to prepare his balance sheet at termination of operations in Iran and submit
it, together with the prior notice prescribed in Article 5 of the Law, to the Supervisory
Board. The Supervisory Board, upon appropriate investigations, will grant permission for
the export of foreign exchange requested within a period of time to be set forth in the
permit;

The period of time set forth in the permit shall not exceed three months,
unless the amounts of capital which are exported are of such magnitude that, in the
Board's opinion, may cause foreign exchange difficulties. In such a case, a longer period
shall be prescribed; the amount of annual transfer, however, must not be less than 30% of
the capital;

(c) Rate of foreign exchange for transfer of profits or repatriation of capital shall be
the Bank selling rate on the day of the transfer; (d) The income, gained from the rise in
prices at the time of the sale of the non-cash capital, shall not be convertible into
foreign exchange; but, the invertor has the right to export the equal value in Iranian
goods without any foreign exchange undertaking;

(e) In case of sale or cession in Iran of original foreign capital or of equity shares,
the owner has the right to transfer abroad the proceeds of the sale or cession in
accordance with the provisions of the law concerning the Attraction and Protection of
Foreign Investments and the Present Regulations or, he can request to reinvest all or part
of it in Iran if he is so inclined;

(f) The foreign investor, having due regard to Note 2 Article 3 of the Law concerning
the Attraction and Protection of Foreign Investments, is entitled to cede to another
foreign investor his capital or equity share subject to the approval of the Supervisory
Board; in such a case, the cedee shall replace the original investor from the standpoint
of the provisions of the Law concerning the Attraction and Protection of Foreign
Investments and present Regulations;

(g) If the foreign investor is not inclined to transfer the capital and accrued net
profit abroad within the period prescribed in the permit, unless he is again granted
permission by the Supervisory Board in accordance with the provisions of the present
Regulations, the said capital and profit shall remain at his disposal but shall not be
subject to the Law concerning the Attraction and Protection of Foreign Investments and the
present Regulations:

(h) Bank Melli (10) Iran and the Foreign Exchange Control Department are, for the
purposes of the above provisions, under obligation to make available to the foreign
investor necessary foreign exchange for the repatriation, within the period of validity of
the permit, of capital, reserve, or the net profit;

(i) In case the foreign investor is inclined to export in from of commodity all or part
of the net profit, or the original capital and the sales or cession proceeds of capital,
or equity shares, with due regard to the above provisions, the Ministries of Finance and
Commerce(11) are under obligation to issue export permit for the said commodities, without
foreign exchange undertaking to the customs and other concerned authorities; Moreover, if
so inclined, the investor has the right to invest and have registered as capital all or
that part of the annual profits which he has not transferred abroad in the same or in
another field, to be agreed upon by the Supervisory Board.

Note:

At the time of repatriation of capital, if a loss is suffered by the investor, as a
result of which part of his capital is lost, the repatriation of only that part of capital
which is still existing according to the balance sheet shall subject to the above
regulations.

Article 14.

The fair compensation referred to in Article 3 of the Law concerning the Attraction and
Protection of Foreign Investments, will be paid on the basis of normal value prevailing
immediately before expropriation.

Article 15.

Firms, the central offices of which are outside of Iran, shall pay registration fees
only in proportion to the capital transferred to Iran.

Article 16.

In cases where for specific work certain machinery is imported into Iran without
transfer of foreign exchange, and is not registered as part of capital, its owner has the
right to export from Iran the same machinery and tools upon the termination of the said
work.

Article 17.

For the participation of the Undersecretary of National Economy in Supervisory Board,
subject to the discretion of the Board's Chairman (Governor of Bank Melli) (12), when the
subject of proposal is related to industrial affairs, the Technical Undersecretary of
Industries and Mines, and when the subject is related to mining affairs the Mining
Undersecretary of the Industries and Mines, and when it i related to commercial and
banking affairs the Undersecretary of Commerce, shall participate.

Article 18.

Functions assigned to the Supervisory Board in the Law concerning the Attraction and
Protection of Foreign Investments are to be regarded as part of the main functions of the
members of the said Board. The personnel budget of the Secretariat of the Supervisory
Board and fees payable to experts shall be made available by Bank Melli (13) Iran.

The above Regulations comprised of 18 Articles and 4 Notes, which, subsequent to the
approval of the relevant Committee of the Senate, had been approved by the Committee on
commerce of the Majles, at its sitting on Mehr 17, 1345 (A.H.), is enforceable by virtue
of the Law concerning the Attraction and Protection of Foreign Investments.

Explanations:

According to Article 2 of the Law concerning the Attraction and Protection of Foreign
Investments in Iran, a Supervisory Board was set up in Bank Melli Iran, under the
chairmanship of its Governor. But later on, Article 85 section 4 of the Monetary and
Banking Law of Iran ratified on Khorded 7, 1339 (A.H.) provided that a Supervisory Board
for the Attraction and Protection of Foreign Investment, subject of Article 2 of the Act.
of Azar 7, 1334 (November 28, 1995), concerning the Attraction and Protection of Foreign
Investments be constituted in Bank Markazi Iran under the chairmanship of the Governor of
the Bank.

In Bahman 1349 (February 1972) the Law transferring the Centre for the Attraction and
Protection of Foreign Investments to the Ministry of Economy was ratified. According to
the aforementioned Law, a Supervisory Board for the Attraciton and Protection of Foreign
Investments was set up under the chairmanship of the Minister of Economy or his Deputy.

According to Article of the Law on Formation of Ministry of Economic Affairs and
Finance dated Tir 1353 (A.H.), the title of the Centre for the Attraction and Protection
of Foreign Investments was changed to "Organization for investment, Economic and
Technical Assistance of Iran". A Supervisory Board for the Attraction and Protection
of Foreign Investments was set up under the chairmanship of the Minister of Economic
Affairs and Finance or his Deputy.